16 July, 2009
PERILYA LOWERS CASH COSTS OF
PRODUCTION VIA THE TERMINATION OF SILVER SALE AGREEMENT WITH COEUR d?ALENE, PERMITTING SILVER SALES
INTO SPOT MARKET
Key Points
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Perilya signs agreement with CDE Australia Pty Ltd (?CDEA?)
and Coeur D?Alene Mines Corporation (?Coeur?)
terminating Perilya?s obligations to deliver a
further 11.2 million ounces (approximately) of silver under the Silver Sale
Agreement between the parties executed in 2005.
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The payment to
extinguish the agreement of US$55 million will enable Perilya to sell those
previously committed ounces into the spot market. The 11.2 million ounces
have a face value of approximately US$145 million (basis US$13.00/oz).
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The transaction
will further underpin the viability of the Broken Hill operations, with the
additional silver credits expected to reduce cash operating costs (C1) by
approximately US$0.10-US$0.12 per pound of payable zinc at current silver price
and USD/AUD exchange rates.
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The transaction
is strongly cashflow and earnings accretive for
Perilya at current silver prices and rates of production.
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The increase in future cashflow and
profitability that this transaction produces will also enable Perilya to
re-assess the potential of mining high silver grade deposits in the region,
including North Mine, Potosi and the North Mine Deeps projects.
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The transaction is further demonstration of the strength of the
partnership with Shenzhen Zhongjin Lingnan Nonfemet Co. Ltd (?Zhongjin Lingnan?)
who have facilitated the financing of the transaction.
Perilya Limited (ASX:PEM) today announced it
has entered into a deed of termination with CDE Australia Pty Ltd (CDEA)
and Coeur d?Alene Mines Corporation (Coeur)
pursuant to which Perilya is released from the obligation to deliver a further
11.2 million ounces of silver to CDE under the 2005 Silver Sale Agreement from
its tenements in and around Broken Hill. The consideration to be paid by
Perilya for the termination is US$55 million with the termination being
effective on and from 1 July, 2009.
Upon completion of the termination deed, CDEA and Coeur will release all
securities registered against Perilya and its mining tenements in Broken Hill.
As previously announced, on 8 September 2005 Perilya Broken Hill Limited (PBH)
entered into a Sale Agreement with CDEA and Coeur, under which PBH agreed to
sell 17.2 million ounces of silver product (which includes all silver in the
form of ore or concentrate) to CDEA for US$36 million plus US$2.00/oz (C.P.I.
adjusted) on every ounce sold thereafter (up until the completion of the
agreement). To date, Perilya has delivered approximately 6 million ounces
of silver product to CDEA under the agreement.
At the time of the original transaction, the funds raised from the sale
of the silver were crucial in allowing Perilya to fund the development of its zinc and
lead mining operations at Broken Hill.
The freeing up of the silver product for Perilya will have a significant
impact on reducing the cash costs of production by way of vastly improved
silver credits. The reduction of cash costs (C1) of production will be in
the order of US$0.10/lb-US$0.12/lb (at current silver price and USD/AUD
exchange rates).
This reduction in cash costs will help underpin the viability of mining
operations at Broken Hill. In addition, the increase in future cashflow and profitability that this transaction produces will enable
Perilya to re-assess the potential of mining the higher grade silver deposits
on Perilya?s Broken Hill tenements including the
North Mine, Potosi and North Mine Deeps.
Perilya currently produces approximately 1.4 to 1..6
million ounces of payable silver a year. At current rates of production
and silver spot prices, the payback period for the purchase price is less than
four years. Any increase in production rate will further reduce the
payback period from the purchase.
The termination of the Silver Sale Agreement has been funded by an
unsecured credit facility provided by the Bank of China to Perilya in the
amount of US$50 million, with the balance being paid out of Perilya?s
cash reserves. The funds are being provided via a guarantee facility
granted by Zhongjin Lingnan
to the Bank of China. The facility is not secured over any of the assets
of Perilya.
The facility is a rolling 12 month facility which may be extended for a
further two years at Perilya?s
option.
The facility has been provided at highly competitive rates, which are
superior to what Perilya could achieve in the absence of Zhongjin
Lingnan?s support. The
total costs of funding to Perilya, including bank and facility fees, margin and
the guarantee fee payable to Zhongjin Lingnan in aggregate comprises less than 3% plus LIBOR p.a.
(basis is three month LIBOR).
In line with the Company?s
Financial Risk Management policy, Perilya will continue to assess the silver
price and, if considered appropriate, look to put in place price protection
during the expected term of the debt facility whilst maintaining long term spot
silver price exposure.
Perilya Managing Director, Paul Arndt, said ?the agreement represents
a significant opportunity for Perilya which further places the Broken Hill
Operations on a fundamentally stronger footing and enables us to vigorously
pursue expansion opportunities whilst receiving full credit for the suite of
metals we mine.?
?The transaction would not have
been possible without the support of our major shareholder, Zhongjin
Lingnan and further underlies the benefit of the
relationship with Zhongjin Lingnan,
which flow to all Perilya shareholders.? Mr. Arndt said.
Mr. Zhang Shuijian, Perilya?s Chairman and President of Zhongjin
Lingnan, added: ?that this transaction reinforces Zhongjin Lingnan?s commitment to
Perilya and demonstrates its faith in the long term future of the Broken Hill
mine.?
ENDS
For further information please contact:
Investors & Media:
Paul Arndt
Managing Director
+61 8 6330 1000
Inquiries:
Paul Marinko
Company Secretary
+61 8 6330 1000